All too often people let outside circumstances determine their mood… If it rains, you feel sad and depressed. If the office idiot insults you, you feel sad and depressed. If the government adopts more policies that hurt business and our children’s futures, you feel sad and depressed.
I’m not saying these reactions aren’t natural, but do you really wish to allow others to have such control over you? Do you really want that office idiot that you despise to the high heavens to be the one who decides every day whether you are happy or not? Well, I don’t! …and that’s why I just choose to be happy! Not possible for you? Well then let me see if I can’t just sprinkle a little optimism on your future for you.
Admittedly, Mergers & Acquisitions (M&A), Private Equity (PE), and Venture Capital (VC) activity are about as depressed as one can imagine. The rationale seems obvious and simple enough… The economy collapsed… therefore the investment capital available for such activity must have been obliterated as well. Right?!?
Well, apparently not… The Alliance of Merger & Acquisition Advisors (AM&AA), the leading association and credentialing body for middle market M&A professionals, and PitchBook Data, Inc. (www.pitchbook.com), a private equity-focused research firm, announced on June 2nd their research quantifying the gap between private equity funds raised and equity invested has widened to an aggregated level of $400 billion, an all time high! Despite record fundraising years in both 2007 and 2008… The overhang climbed another $141 billion in 2008 as funds closed on new capital and their investment activity plummeted over 60% on global crisis fears and uncertainty.
In short, the deal flow dropping to multi-year lows has nothing to do with depleted capital resources for investment. It has had everything to do with the uncertainty of the crisis, the stability of our global economy, and fears as to how our government and others might respond. The bad news is that our governments responded rather poorly. The good news is that enough time has past that we all have a pretty good feeling as to what the business and political environment of the future will be like. …and as long as we know what’s coming, as business men and women, we can plan for it.
So, to help you make your own plans… here’s a little more analysis on our industry (PE/VC). The industry is sitting on plenty of capital. They have been using the down turn to take a strong hard look at their portfolios; undoubtedly, the recession has even made the pinpointing of portfolio winners and losers more apparent… Further, they have been assessing the future and which industries and regions hold the most promise and potential.
In short, now that the future ground (government/economy) is taking shape… plans to navigate it are becoming possible… and that’s good news. Further, the well funded PE & VC firms are finishing their own analysis and so I predict that we should expect to see a rebound in deal making to begin before year’s end… irrespective of economy, because the deals being made will already have factored it in… So, getting back to deal making is good… right? (The firms will be investing in opportunities capable of surviving either an economy of low-growth/stagflation or, worse case, a second recession brought upon by the inevitable inflation of our government’s present spending habits.)
So, things may look bad, but they’re completely navigable. Feel positive that our industry is well funded and ready to get back to business… The “troubled” landscape ahead just means we need to choose our path and prospects carefully. So, scan your horizon, plan accordingly, put your best foot forward and prepare for launch. (I’ll provide further assessment on the pending Earth/Mercury collision as the event draws nearer.)
by: Neil Palmquist CM&AA, CEPA, June 15, 2009